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Investing well amongst global turbulence

Published: Wed 4 Sep 2019 11:59 AM
As hopes of a trade deal between China and the US are fading, Milford Asset Management Investment Analyst Stephanie Perrin says there’s no sign yet we’ve reached a tipping point for the big tech stocks. They may not be immune to the turbulence, but they remain strong.
“If there was a significant downturn or recession, there would be very few companies that would be immune and that includes the big tech stocks. But what we’re actually seeing is a gradual slow-down, and these technology companies are continuing to execute very well, while maintaining robust balance sheets which makes them more resilient. There are some companies that are more exposed to the trade war than others, for example Apple and some of the hardware manufacturers that have supply chains in China – but there are others, like Facebook, Google, some of the software names, that have very little exposure in China and are holding up well.”
On the other hand US banks stocks, like Bank of America and Morgan Stanley have taken a hit. Every banking wobble rekindles fears of a new global financial crisis – but Stephanie Perrin says we’re not on the brink of a new global slump.
“Bank stocks have pulled back on concerns around the economic slow-down and, more importantly, falling 10-year yields that pressure banks’ net interest margin – the difference between what they pay on deposits versus what they charge on loans. But we did see in the recent quarterly earnings that they’re achieving modest loan growth, solid credit quality and there’s been consistent commentary around the ‘healthy’ US consumer. There’s also the potential for a re-acceleration of growth on the back of lower interest rates. And it’s very important to note that US banks are in a very different situation now versus prior to the GFC: they’ve de-risked their balance sheets, are well capitalised and stress tests have shown that they can withstand an economic shock.”
So, in the face of economic volatility here and around the globe, how is Milford positioning its funds?
“There’s still a very wide range of outcomes for the trade war and as such, we’re not trying to position the funds in a way that we would be betting on one outcome or the other. Our global investments are focused on companies that have sustainable earnings growth and are tapped into secular trends that will continue regardless of what happens in the trade war. Companies that are more domestic-focused, have held up better than others. And we have shifted to slightly more defensive names in our portfolio. We do expect that increased volatility will continue, which creates a great stock-picking environment where we can be opportunistic.”
If you’d like to view Stephanie Perrin’s interview discussing these and related issues you can click here.
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